Backbone of economy, mid-market businesses, set to bounce back

At last there seems to be light at the end of the tunnel. As the lockdown restrictions ease, there is a palpable, though still cautious, mood of optimism starting to stir.

In a KPMG survey of 225 mid-market businesses published today, almost 80 percent expressed confidence in their ability to bounce back from the COVID-19 crisis. Perhaps surprisingly, the majority felt they could be back up to full speed within just 3 months of the pandemic ending.

It shouldn’t be underestimated how widespread the effects of the crisis have been. The survey, carried out last month, found 86 percent of business leaders had been emotionally concerned at a personal level. Ninety four percent said the crisis had impacted their business – 52 percent of them ‘significantly’. The shutdown has taken a toll, and the economic environment was overwhelmingly (79 percent) the biggest challenge for respondents, followed by other financial issues such as decreased consumer confidence (48 percent), cost base increases and reduced profitability (43 percent).

But it would have been much, much worse without the JobKeeper support package. Business leaders, especially in the smaller end of the market, made that very clear. While nearly 60 percent of businesses categorised themselves as still in the early response or ‘managing through the crisis’ phase, almost one-third were now fully in recovery mode, resetting and identifying market opportunities. And with each week that passes, more are moving into recovery.

Businesses are now adapting to the new world. It is clear, that in important ways, the lockdown has accelerated necessary changes. The obvious one is technology, where there had been a long-term need for upgrades in much of the smaller and mid-tier sector. This has now been forced on many organisations to cope with their staff being at home and business activity moving online. There have been increased moves to the cloud and provision of digital models for clients.

Increased workforce engagement has also been a feature of the shutdown. A sizeable number of businesses mentioned this – and workforce capability – as being concerns, given that many now felt under-resourced in the HR function, but we have seen leaders rising to the challenge and in many smaller businesses taking a personal role in the pastoral care of employees. The need for enhanced employee wellbeing will be an ongoing legacy of the crisis – as will customer communication which many companies have had to step up. Not before time in many cases.

Looking ahead, we will see increased financial stress-testing and risk re-assessments; and moves to transform both business models and internal culture. Some of the changes will be permanent.

We can see early signs of a ‘refusal to return’ to the old ways of doing things. The obvious example is workforce and travel.  Working at home will become a norm for many and there will be long-term implications for industries with decentralised workforces. There is also a feeling of ‘power in the collective’ – franchisees told us of the benefits of being in a larger organisation during the crisis and noted a spike in queries from sole traders.

There are a variety of challenges now facing the mid-tier sector as we start to emerge from the lockdown, but the overriding feeling shown by the report is one of cautious optimism. Most businesses feel they will either grow, or if business performance is shifting, then the negatives will be outweighed by the growth in the next three-month period. Even those industries which have been in complete shutdown say they believe they will be back to 80 percent profitability by September to January

Nobody wanted this crisis, but our findings show there will be long-term, and in some cases beneficial changes to a new way of working in the engine-room segment of the Australian economy.

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